Senate May Drop Tax on Foreign Investors if Trade Partners Cooperate

In a surprising shift during final negotiations over the “One Big Beautiful Bill,” Senate Republicans are signaling they may remove the proposed 20% tax on foreign investors’ U.S. income, a retaliatory measure aimed at European and OECD-aligned tax regimes.

This pivot comes as international trade and tax policy increasingly intersect with domestic legislation, particularly in the face of escalating global digital tax frameworks and OECD minimum tax requirements.

What’s in the Bill?

The House version of the bill included Section 899, a provision that would impose a 20% tax on passive U.S. income (such as interest, dividends, and rents) received by foreign individuals and entities from countries that adopt digital services taxes or minimum tax rules unfavorable to the U.S.

It was widely viewed as a retaliatory clause aimed at:

• EU countries that imposed digital services taxes on U.S. tech giants

• OECD nations enforcing 15% global minimum tax rules

• Jurisdictions that denied U.S. tax credits or deductions under GILTI and Subpart F

  
  

What’s Changing in the Senate?

Senate Republicans are now signaling a willingness to remove or delay implementation of this tax but only if U.S. trade partners agree to back off digital and minimum tax rules targeting American companies.

According to recent comments from GOP Senate negotiators:

• The tax will be “held in reserve” unless U.S. multinationals face discriminatory taxation

• Lawmakers want to preserve leverage while reducing diplomatic tension before the OECD’s July summit

• If the foreign nations comply, Section 899 could be pulled entirely from the final package

  
  

However, Senate procedural rules may complicate full removal. Under budget reconciliation rules, revenue-raising provisions must meet specific criteria, and foreign tax policy often requires bipartisan support.

Why This Matters for Tax Professionals

If enacted, Section 899 would have a profound impact on:

• Cross-border estate planning involving U.S. assets

• Foreign direct investment in U.S. real estate, startups, and private equity

• Withholding tax strategy for U.S. payors remitting dividends, royalties, and interest

  
  

For multinational businesses and their tax advisors, this provision would increase compliance risk, reduce yield for nonresident investors, and possibly violate treaty obligations.

But with the Senate’s potential rollback, international tax planners now face greater uncertainty as the final bill nears reconciliation.

How Bizora AI Can Help

Bizora AI automatically tracks international tax provisions and models their impact on inbound and outbound investment structures. With built-in treaty analysis and entity-level planning modules, Bizora empowers CPA firms and tax counsel to:

• Analyze the Section 899 provision by country and asset class

• Draft memos for nonresident investors on potential tax exposure

• Adjust cross-border holding company structures in real time as legislation evolves

Want to see how Section 899 could affect a foreign investor in U.S. real estate or tech?→ Ask Bizora AI for a full breakdown updated daily.